Mumbai: The share of domestic lenders in the global banking space is slated to almost double to 2.8%t by 2015 from the present 1.5%, on the back of a 18-20% annual growth, says a McKinsey & Company report.
“The share of the domestic banking industry within the global space will almost double to 2.8% by the end of fiscal 2015. This was 1.5% at the end of FY09”, says the McKinsey report, adding the banking and financial sector will remain the mainstay of the economy.
This massive growth will see the underlying assets of the domestic banks touching $three trillion and deposits scaling to around $2.3 trillion, adds the report.
“At the end of FY09, the revenue of the domestic banking industry stood at $2,850 billion, which will scale to nearly $4,000 billion by the end of FY15,” the report further said.
The report further says that at least five-six domestic banks will be in the global 100 league over the next decade. Similarly, there will be faster consolidation amongst the banks too.
Currently, the top five banks lead by State Bank of India, ICICI Bank, and Punjab National Bank, will rise further to 66% by the end of this fiscal in terms of market capitalisation from 55% in 2005.
During the past one decade, the revenues of the domestic banks grew more than four-fold from $11.8 billion in 2001 to $46.9 billion in 2010, while their net profit soared nearly nine-fold to $12.06 billion in 2010 from a paltry $1.41 billion in 2001.
More interestingly, this scorching growth is set to continue with the industry expected to log in a robust 18-20% growth annually in the next five years, the report says, adding during this period, the banks will record better profits and will give a return on equity of more than 16%.
The report bases this optimistic growth on the following five growth drivers such as favourable demographics, rising corporate aspirations, strong regulatory push, technological innovations, and rising productivity and economies of scale.
It can be noted that nearly 30 million are added to the already burgeoning middle class population of nearly 400 million every year. And this growth will only get a further fillip with the near double digit economic growth.
After growing at over nine% in the past three years prior to the 2007-08 global financial meltdown, GDP growth decelerated in FY08 and FY09, as exports shrank and trade deficit massively widened due a historic jump in crude prices in 2009 to nearly $190 a barrel.
However, FY10 saw a much better performance of 7.4% growth driven by a faster than expected recovery of the manufacturing sector. However, growth would have much better had it not been for the worst drought in four decades that the country faced that year.
On the back of strong manufacturing growth driven by rising domestic consumption and a robust farm sector data, the government last week had revised upwards its GDP forecast to over nine% for the current fiscal, from its original estimate of 8.5% as the first half growth has been highly above expectation.
While in Q1, the GDP logged in 8.8%, in the second quarter it was a notch better at 8.9% on the back of all-round growth led by manufacturing, farm, and services.
All this has per capita income (at current price) growing by 10.5% to $947.21 in FY10 as against $857.43 in FY09.
On the corporate side, the McKinsey report says that the number of domestic companies in the global 500 list will jump to 16-20 by 2020 from the current list of just eight.
Citing its own survey findings among 2,000 CEOs, the report says, as many as 70% of them hope to clip at 20-25% profit growth over the next one decade or so.
On the growth trends in the industry, it will still be driven by retail, followed by wholesale banking. While retail banking chipped in $15 billion of the $43 billion banking revenue in FY09, it will more than double to $39 billion by FY15, while that of wholesale banking will touch $30 billion by FY15, up from $12 billion in FY09.
The next big growth driver for banks will be rural banking, which is the focus of the government as well as the Reserve Bank, under the financial inclusion project, which by FY12 will see as many as 60,000 more villages with over 2000 population coming under the banking lens.
While in FY09, the rural banking just contributed $nine billion in revenues, it will be chipping in $24 billion by the turn of FY15, clocking a massive 19% annual growth annually. The next growth area will be SME sector, which gave $7 billion in FY09 and will touch $18 billion by FY15, when the overall revenue of the domestic banking sector will scale to $111 billion.